The federal estate tax cliff that drove years of defensive planning never arrived. President Donald Trump signed the One Big Beautiful Bill Act on July 4, 2025, and the law raised the federal basic exclusion amount to $15 million per person for 2026.
For married couples, careful portability planning can potentially preserve up to $30 million of combined federal exclusion, and the threshold is indexed for inflation after 2026.
That change removed the looming Tax Cuts and Jobs Act sunset, but it did not erase the broader case for trusts.
Bank of America Private Bank’s family-protection guide makes that distinction directly: Trusts can serve purposes far beyond reducing federal estate taxes, from controlling inheritances to preparing for incapacity and complicated family relationships.
Bank of America’s 5 trust uses go beyond federal taxes
Bank of America organizes its guidance around five uses, and that list matters more after the 2025 law change because it separates tax planning from family protection.
- Plan for coming generations: A trust can set rules for how children or later generations receive money, including limits tied to education, health, housing or age.
- Prepare for future potential health needs: A revocable trust can provide a management roadmap if the grantor becomes incapacitated.
- Support business succession: A trust makes it easier to pass ownership to the people you choose, on the timeline you set.
- Plan for special needs family members: Trusts can be designed around the long-term needs of a family member with disabilities.
- Manage mixed families: Trusts can help blended families balance the interests of a surviving spouse with children from an earlier marriage.
A household no longer facing federal estate tax may still have probate, creditor, succession, special-needs, or inheritance-control concerns.
Bank of America also recommends reviewing legacy plans at least annually and sooner after major tax-law or family changes.
State estate taxes still start far below $15 million
The new federal threshold does not control state estate taxes. Twelve states and the District of Columbia impose their own estate taxes, while five states impose inheritance taxes, according to Tax Foundation data.
For 2026, Oregon has the lowest estate-tax threshold at $1 million, and Rhode Island’s is about $1.84 million. Massachusetts is $2 million, Minnesota is $3 million, and Washington is now $3 million for deaths on or after July 1, 2026, down from $3.076 million, with the top rate simultaneously cut from 35% to 20%.
Illinois is $4 million, the District of Columbia is about $4.99 million, and Maryland and Vermont are $5 million. Hawaii is $5.49 million, Maine is $7.16 million, New York is $7.35 million, and Connecticut is $15 million, according to Maine Revenue Services and the Tax Foundation.
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That creates a wide federal-state gap, and a Massachusetts resident with a $4 million estate may be far below the federal filing threshold while still facing Massachusetts estate-tax exposure.
Oregon’s Department of Revenue requires an estate return when total estate assets reach $1 million and include Oregon-taxable property. Minnesota’s filing threshold has remained $3 million since 2020.
Inheritance taxes add another layer, with Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania taxing certain beneficiaries, with exemptions and rates depending on the heir’s relationship to the person who died, according to the Tax Foundation.
Those state-level tax differences matter even more when a trust is already locked in, and the federal landscape is about to shift.
Pre-2025 irrevocable trusts deserve a fresh review
For families who set up irrevocable trusts specifically to beat the expected federal exemption drop, the new $15 million threshold raises concerns.
The harder question now applies to families that moved appreciating assets into irrevocable trusts before the expected federal exemption drop. Those plans should not automatically be dismantled simply because the federal cliff disappeared.
Bank of America suggests starting the review with the trust’s original purpose, then examining which assets are held in the trust.
Families need to determine whether they remain inside or outside the grantor’s taxable estate, who holds modification powers, where the trust is administered, and which state’s law governs it.
Jennifer F. Galvagna, managing director and head of Trusts, Estates and Tax at Bank of America, says trusts aren’t only for the rich, but they shape how heirs use wealth.
There are many reasons to use trusts beyond minimizing taxes. One of the most important is giving you a say in how your hard-earned wealth will be used over the coming generations.
IRS Revenue Ruling 2023-2 confirms that assets placed in an irrevocable grantor trust through a completed gift do not receive a basis adjustment at t`he grantor’s death when those assets are excluded from the grantor’s gross estate.
That can make an old estate-tax strategy less attractive when capital-gains exposure is now the larger concern. But the result depends on the trust’s terms and estate-inclusion rules, so “irrevocable” does not automatically mean “no step-up.”
Options and tradeoffs when decanting or unwinding a trust
Depending on state law and the document, options can include exercising existing powers, obtaining beneficiary consent, seeking court modification, using a nonjudicial settlement agreement, terminating the trust or decanting its assets into a new trust.
Decanting lets a trustee move assets from an old irrevocable trust into a new one with updated terms. This method can modernize the trust while honoring the settlor’s original intent.
The American College of Trust and Estate Counsel (ACTEC) cautions, however, that modifications can create income, gift or generation-skipping transfer tax consequences and can expose trustees to fiduciary concerns.
ACTEC advises families weighing a trust change to evaluate the impacts on tax benefits, estate treatment, gift implications, state laws, beneficiary rights, and trustee authority.
As Bank of America notes, the federal deadline may have passed, but the planning questions have not, including whether existing trusts still fit current circumstances and goals.
Related: UBS flags costly tax shift retirees may not see coming
